Sorry!! The article you are trying to read is not available now.
Thank you very much;
you're only a step away from
downloading your reports.

Fear Not, CNOOC-Nexen Deal Still Happening, Say Analysts


The Canadian government's blocking of a takeover of a Canadian energy company by Petronas has investors worried the same could happen with the CNOOC-Nexen deal.

MINYANVILLE ORIGINAL The proposed takeover of Canada's Nexen (NYSE:NXY) by the state-owned China National Offshore Oil Corporation (NYSE:CEO), or CNOOC, hit a major roadblock after the Canadian government unexpectedly blocked a $5.17 billion takeover of Progress Energy Resources (TSE:PRQ) by Malaysia's state-owned Petronas energy company.

On Friday, Canadian Industry Minister Christian Paradis said that Petronas' attempted acquisition of Progress would not provide the "net benefit" for the country required by Canada's foreign investment laws.

Alarms bells regard the CNOOC-Nexen deal immediately went off after, especially since CNOOC's $15.1 billion takeover of Nexen is much larger in size compared to the Petrona-Progress deal, and CNOOC, unless Petronas, is thought to be intrinsically linked to the state.

Investors have reacted negatively to the news as well. Shares of Nexen, which had surged over 40% since the CNOOC takeover was announced in July, were down more than 4% in late Monday trading.

In spite of the Petronas-Progress development, Wall Street analysts do not think that the CNOOC-Nexen deal will be blocked. Credit Suisse explained in a note that it believed the Petronas-Progress deal was blocked only because "the government felt it had not yet obtained a clear undertaking from Petronas on the net benefits of the transaction and specifically a mechanism to ensure the undertakings were fulfilled."

With Petronas having been given 30 days to submit any further undertakings, the implication is that the denial could be reversed. Thus, Credit Suisse wrote that "it remains our view that the Nexen acquisition will proceed as proposed."

Meanwhile, in a report released Monday, Bernstein Research warned that though the decision to block the Petronas-Progress deal "has increased the probability that the CNOOC/Nexen deal will not be approved and sends a clear signal that Canada is not as open to oil and gas M&As as it has appeared," the odds remain in CNOOC's favor because of several reasons.

Firstly, while 100% of Progress's assets are located in Canada, only 32% of Nexen's production capacities are located domestically. Unlike Petronas, CNOOC has also made stronger overtures to the Canadian government to ensure that there is a "net benefit" for the country, such as guaranteeing that it will keep exisitnig Canadian staff, make Calgary its North American headquarters, and offer a secondary listing in Toronto. Also, "Nexen is more international and does not have the same conflict of interest with LNG sales to Asia as Petronas would have with Progress," wrote Berstein.

"We believe CNOOC has been quite proactive in its commitments toward ensuring the net benefit of the transaction to Canada," UBS also noted, adding that CNOOC is more transparent than Petronas because it is publicly-traded.

The Canadian government's decision on the CNOOC-Nexen deal is expected to arrive on November 12, according to Paradis.

Twitter: @sterlingwong
< Previous
  • 1
Next >
No positions in stocks mentioned.
The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

Copyright 2011 Minyanville Media, Inc. All Rights Reserved.
Featured Videos